How a Nebraska Boy Built an Island Empire with Other People's Money-Jeffrey Prosser

HOW A NEBRASKA BOY BUILT AN ISLAND EMPIRE WITH OTHER PEOPLE'S MONEY-JEFFREY PROSSER

Article Summary

Jeffrey Prosser grew up in Falls City, Nebr. (pop. 5,000). He drove a bulldozer and spliced cable for the telephone company where his father worked. He got an accounting degree at the University of Nebraska. He went to the Caribbean at age 25 on behalf of some Nebraska investors interested in buying an alumina plant in St. Thomas. The purchase didn’t go through, but he stayed.

When ITT offered its Virgin Islands telephone business, Vitelco, for sale, he made an $87 million bid. Vitelco ignored the offer then, but six months later, it reconsidered. Prosser obtained 105% debt financing from E.F. Hutton & Co. Vitelco had no competition in the Virgin Islands and the Virgin Islands Public Service Commission guaranteed him an 11.5% return on his investment. Mr. Prosser refinanced in just one year, replacing the Wall Street loan with a $104 million loan from the Rural Telecommunications Finance Cooperative at a below-market rate.

Mr. Prosser then purchased 80% of Guyana Telephone & Telegraph for $25 million. Eleven months later, he took Vitelco public by offering 4.4 million shares, 40% of the total shares, at $19 per share. That made Mr. Prosser's stake worth $63 million.

Mr. Prosser kept buying. He used his company “Innovative” to buy four Caribbean cable-TV companies and Gannett's Virgin Islands Daily News. He then consolidated his businesses, by having Innovative buy out Emerging Communications. He got rid of the minority shareholders in the process. Mr. Prosser still kept on buying.

The government of Belize gave Innovative permission to buy all the stock of Belize Telecommunications Ltd., from Lord Michael Ashcroft and Carlisle Holdings, for $105 million. For that deal, Mr. Prosser needed to pay Belize Telecommunications' debts to the Belize government, in cash. Vitelco sold 85,000 shares of preferred stock to investors for $82 million to acquire the needed cash. This deal has caused Mr. Prosser problems.

The rural telecom cooperative and Virgin Islands regulators allege that Vitelco wrongfully took $28.5 million of its proceeds and lent it to Belize Telecommunications. The co-op's loan agreement requires Innovative and its subsidiaries to use any funds from financing activities to pay the loan from the co-op. Innovative assets are worth $1 billion but if forced into bankruptcy, physical assets would only amount to $360 million, which is 65% of its debt to the rural co-op. To date, Mr. Prosser is staying current on all his loan payments. Is Innovative insolvent? "It depends on what your definition of insolvency is," says Lanny Davis, a Washington, D.C. lawyer speaking for Prosser.

Relevant Business Issues

Jeffery Prosser is an entrepreneur that found ways to buy companies and manipulate the system. Mr. Prosser obtained 105% debt financing from E.F. Hutton & Co. and later he replaced the Wall Street loan with a $104 million loan from the Rural Telecommunications Finance Cooperative. People are willing to invest in a business if they believe that the risk of losing their money isn’t too great. That belief changed when Mr. Prosser reinvested his profit instead of repaying it to his investors. The ensuing charges by those investors and by angry stockholders, may force Mr. Prosser into bankruptcy, which will divide any assets among his creditors and relieve him of his debt, allowing him to begin anew. Corporate social responsibility means making money for stockholders, not getting rid of the minority shareholders. Ethical behavior